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Do corporate governance mechanisms matter for cash holdings and firm value?

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  • Kusnadi, Yuanto
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    Abstract

    This paper examines the relationships between firm-level corporate governance mechanisms and cash holdings; along with their combined effects on firm value for a sample of firms listed in Singapore and Malaysia. Firms with less effective governance attributes are found to be more inclined to accumulate cash than those with more effective governance. The results support the flexibility hypothesis in that an increase in agency conflicts between managers and minority shareholders leads to entrenched managers having more discretion to hoard cash reserves. In addition, the incremental value of holding excess cash is shown to be negative for firms with a single leadership structure, firms with a pyramidal ownership structure, as well as family-controlled firms. The discounts associated with these firms may reflect investors' recognition of the possibility of managerial entrenchment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 19 (2011)
    Issue (Month): 5 (November)
    Pages: 554-570

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    Handle: RePEc:eee:pacfin:v:19:y:2011:i:5:p:554-570

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Corporate governance mechanisms Cash holdings Firm value;

    References

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    Cited by:
    1. Orens, Raf & Reheul, Anne-Mie, 2011. "Do CEO Demographics Explain Cash Holdings in SMEs?," Working Papers 2011/35, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

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